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Vanguard core funds are a very popular set of mutual funds. Two of them, VFINX and VFIAX, are extremely similar. They both hold the 500 largest stocks in the US equity market. They both have the same size and content, but VFIAX has an expense ratio of 0.04% and VFINX has an expense ratio of 0.14%. In previous years this made sense - VFIAX required a minimum investment of $10,000 and VFINX only needed $3,000. As with many financial operations, a larger sum of money enabled a cheaper expense rate. However, recently VFINX closed to new investors, and VFIAX dropped its minimum to $3,000 (or $0, according to my own bank).

As an amateur investor who isn't familiar with pricing structures and mutual funds, I can think of no reason why Vanguard would maintain two identical funds, one being more expensive than the other for the exact same content. Shouldn't any reasonable investor drop all of their holdings in VFINX and move to VFIAX immediately? Even if you only had $3000 and were forced to do VFINX, now you can invest in VFIAX at a lower cost. What am I missing?

  • And that's exactly why they closed their investor shares funds - since now admiral shares lowered their minimum investment limit. – void_ptr Apr 3 at 15:31
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    I don't know enough to write an answer [and I'm not curious enough to really go look], but I suspect the lower admiral share version, VFIAX is available to fewer third party brokers and the lower initial investment correlates to actual increased administrative costs. Separately, if Vanguard is your broker, vanguard upgrades your units to admiral shares when you meet the minimum holding amount. – quid Apr 3 at 17:39
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Yes, they should move, and the line

You can now buy or convert to Admiral Shares of this fund at a $3,000 minimum.

suggests that one can do so in a tax-free swap, the basis remaining the same.

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    The press release said "If you currently own Investor Shares of any affected funds, you don’t have to do anything. We’ll convert them to Admiral Shares over the next year. Or you can immediately and easily convert your shares using our online process." – Ben Voigt Apr 3 at 15:27
  • @BenVoigt So would it be safe to say that Vanguard is just intentionally removing the higher cost fund (VFINX)? – WannabeCoder Apr 3 at 15:31
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    @WannabeCoder: Yes, my guess is they decided (1) they needed to lower ER to be competitive and (2) the lower ER for Investor-class didn't leave enough spread to be worth keeping track of two share classes. So the min investment for Admiral is decreasing and the Investor class is simply going away. Not just on this fund, but pretty much all of them (exceptions would be ones that didn't have both Admiral and Investor class prior to the announcement). – Ben Voigt Apr 3 at 15:43

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